Jack Ferguson from Be the Push is a good friend of mine, and he recently had the privilege of interviewing Tech Investor and judge on Shark Tank Australia Steve Baxter as part of his Push Events. If you weren't able to make it Jack has you covered. Here are 9 lessons he learned from the night.
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1. Australia doesn’t have an Investor shortage.
Steve: I’ve talked to a lot of startups who say, ‘I’ve spoken to the 15 investors I could find and they all hate my idea, therefore they are wrong.’
No, they’re not. What you’re selling is wrong. What you’re selling they don’t want, it’s that simple. Your product is equity and that product is bad. It’s an investment in your company. So, change it.
Introducing more investors into the ecosystem where one might make a mistake and invest in a company that is never going to go anywhere is not healthy for anybody. We need to increase the deal flow instead. When we start getting more start-ups we might have an investment problem but we’re not there yet.
I have had roughly 20 entrepreneurs ‘spit the dummy’ at me because I won’t invest in them, and they’ve charged up to Silicon Valley, ‘cause the streets are paved with gold.’ I think 1 has landed an investment within 4 years. Even Silicon Valley doesn’t like what they were selling. If that were 4 or 5 of those entrepreneurs getting investment then I would think we have a problem in Australia. But until that happens, I don’t think we have the deal flow to understand where the real problem lies. So…
2. Deal Flow is Australia’s problem.
Steve: We have 23 million affluent people here. If you’ve got a decent sized business in Australia, you’re doing really well.
So where’s the risk imperative for us to ‘get out from under the covers’ and try to take our businesses global?
You can make decent money from a good-sized business in Australia, in percentage population, on percentage market terms. Compare that to New Zealand where they’ve got about 4 million people or Israel with 8.4 million people. Israel is mostly a poor population with 8.4 million people and 7,200 tech start-ups. But they know what they want because their population is mostly below our level of living. They have to go offshore. We have 23 million and if we had 2,000 tech start-ups in Australia I’d be shocked. Our problem is Deal Flow and that….
3. Our Startup Scene focuses too much on Investment.
Steve: Why are you running your company? Are you running the company to get investment, or are you running the company for some other reason? It should be about delivering a service, product or changing the world. Getting investment doesn’t stop you from selling. If you’ve already sold to customers, you’ve already answered 90 percent of investors’ questions. So to go to an investor without a single customer, or any users, and without any traction, it is going to make it very tough to get someone to invest in you. Just get shit done.
4. There is no value in complaining about Competitive Risk.
Audience Question: Let’s say you’ve invested in a start-up which has big competitors, mostly in the U.S., and all of a sudden, one competitor receives a 30 million dollar investment, another receives a 122 million dollar investment. What would you say to your start-up?
Steve: I’ve seen this before; it’s very difficult when the competitors have so many resources. Go to any company on the ASX doing an IPO, grab the Prospectus and read it. Don’t read the first two pages, actually read the entire thing. Concentrate on the ‘Risks’ section and on the ‘Notes’ section. It looks like a boring read, but it's one of the juiciest reads ever, especially ‘Risks’. They will tell you, because they’ve got to, exactly what the risks are. That’s called a ‘competitive risk.’ In this example your competitors have more money than you. That’s not unfair, that’s called business and everyone needs to know about that, not just the investors.
If you do happen to find yourself in this situation, then you really need to understand whether you want to compete against a gorilla.
All Startups should also know…
5. The Rule of 72
Steve: If you’re going to sit down and have a negotiation with someone and you can’t sit there and do the basic maths in your head, you look like a fool. You need to be right plus or minus 2 percent, you don’t need to be exact, but you need to know that 10 times 10 equals 100 or 9 times 9 is about 81. This is so important in negotiations.
Let’s say you were getting a 12 percent interest rate, how long does it take to double your money? Divide it by 72; your answer is 6 years. If you get a 24 percent interest rate, divide it into 72 and it takes 3 years to double your money on a compounding basis. It’s a rule of thumb, but it’s a bloody good one. Once you understand that formula, it’s actually a very useful tool.
You can read more about The Rule of 72 here.
6. Never spend a dollar to save 50 cents.
Steve: Just because something’s on special doesn’t mean you should buy it. You’re spending a buck to save 50 cents. Don’t do it.
7. Research your potential investors before worrying about NDAs.
Steve: We don’t usually do NDAs. Research an investor. If they’re an investor in a competitor, don’t send them your pitch. It’s that simple. So ask around first. If they’ve got a good name it probably means that they don’t disrespect confidential information because we need deal flow. We actually need to see lots of good ideas to pick the best ones, and if we get a name for disrespecting your intellectual property, we aren’t going to get the deal flow we need.
8. Don’t Die Wondering.
Steve: I often get asked, ‘should I start x company?’, and my response is typically ‘don’t die Wondering’. Just get out there and do it. You’d hate to be past it and full of regret. I hear entrepreneurs saying ‘Should I apply to Shark Tank?’ Me: ‘Of course! What have you got to lose?’
9. Don’t be a Taxi Driver.
Steve: The world is changing and we’re moving more towards this tech style of business where there’s a lot of disruption. If disruption hurts, you’re probably doing it wrong so you better participate in it to benefit from it. It’s going to happen. The taxi industry found that out. If they’d changed their ways five years earlier, Uber wouldn’t exist. They fought it to the end. So don’t be a taxi driver.
Jack also recorded a Podcast interview with Steve which you listen to here on iTunes or Stitcher. If you don't use either you can simply play it from his website here. Some of the topics we discuss include Shark Tank, the NBN, the state of entrepreneurship in Australia, the importance of internal tech when you have a tech startup and leadership.
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If you're a local Brisbanite like us, visit Jack's website and keep up with all of the regular events he puts on. Networking, learning, beer and pizza. Winning!